Everyone is suddenly talking about the coming Brexit vote.
With Britain preparing to vote in a June 23 referendum on whether to leave the European Union, the latest polls seem to suggest that Brits are leaning toward Leave:
- The ICM phone and online poll: Remain 47% / Leave 53% ORB phone poll: Remain 48% / Leave 49% YouGov online poll: Remain 39% / Leave 46%
The Sun, which has the largest circulation of any British newspaper, has come out in favor of a Brexit, which is notable given that The Sun has a great track record in general elections and has always backed the winner.
But while the looming vote is exciting, a team of Barclays analysts previously argued that the outcome could have serious consequences for the rest of Europe.
“In our view, markets are overlooking two crucial aspects of the UK referendum on EU membership that is likely to occur this year and which must take place by end 2017,” Marvin Barth of Barclays wrote back in January, before the issue heated up.
“First, the referendum is generally seen as a ‘UK’ or ‘GBP’ issue, when it is better seen as a European issue,” he argued. “Second, it has largely been viewed as an economic issue, but should best be analyzed through the lens of political economy.”
As for why one should look at the potential political ramifications here, Barth argued that a Brexit could inspire other European countries to think about leaving the EU whenever things got tough (emphasis ours):
A UK exit would set an unwelcome precedent for countries to leave the EU whenever domestic priorities conflict, and would do so at a time when political risks and potential for sovereign-EU confrontation already high. Simultaneously the UK would present Continental opponents of immigration with a politically potent example (and threat) of how to deal with one of the thorniest and most emotionally charged trans-national issues confronting European voters: immigration.
Though this may seem somewhat extreme, it’s worth nothing that last year analysts warned that a similar domino effect could happen after a Grexit, or Greek exit from the EU. And that was before the migrant and refugee crisis turned Europe upside down.
Barth added (emphasis ours): “The precedent of a member state leaving the union would open Pandora’s box: it could be used as a political argument by populist and extreme parties in several countries, both from the right and the left, to push for an EU exit, including for some euro area countries.
“Such events would certainly revive the ‘redenomination risk’ in the euro area.”
In short, get ready for that June 23 UK referendum.It might just make Britain the first domino to fall.